Select Committee on Public Service Report



  157.    A theme which emerged strongly from the evidence given to the Committee was that there had been extensive structural change in the public service over the last thirty years, and the Committee considered the implications of the various changes for the unity, continuity and shared ethos which were important to the integrity of the public service as a whole.

The Problem of Classification

  158.    The Civil Service now consists of many different types of organisation. There are Ministerial departments, non-Ministerial departments, executive agencies, and outside the Civil Service, quangos, NDPBs, regulatory bodies-each with a different set up, scope and status. The Committee questioned whether there was a single underlying rationale or scheme of classification which had determined that a particular function was most appropriately carried out by a body constituted in a particular way. Some witnesses suggested that the drive to farm functions out to agencies and NDPBs was based not on a solid rationale or scheme, but on an ideology of decentralisation. Professor McLean observed (Q 350) "It is clear that the recent change is the most ideologically driven". In the earlier part of our enquiry into the sale to the private sector of the Recruitment and Assessment Services, the First Division Association claimed (1st Report, p 42) that "the decision to privatise Cabinet Office agencies seems to be based more on the ideological prejudices of Ministers than any rational analysis of agencies' performance". Sir William Reid, a former Parliamentary Commissioner for Administration (Ombudsman), asked about Next Steps executive agencies (Q 551), said "some of the new agencies are purely cosmetic, it seems to me, in the sense that they were in existence before. I am thinking of some of the smaller Government departments, like the Department of the Register in Scotland, which were self-standing organisations. They are now in that enormous list ... of next steps agencies and I am not sure that they have really changed all that much, but they are now clocked up as agencies which they were not before."

  159.    When Sir Christopher Foster was asked (Q 79) what were the criteria for deciding whether an organisation should be structured as a quango or an executive agency, he replied, "That is absolutely mysterious. It is quite impossible to find any logic. I think I know what it ought to be, but what it is is beyond human imagining almost." He went on (Q 80) "I think the best example of how there cannot be a strategy is the difference between Historic Scotland and English Heritage. One is an agency and one, I think, is a quango. They are doing exactly the same job and yet they have a difference of status." Professor Bogdanor also said (Q 129) that he could see no rational criteria, as did Sir William Reid (Q 552). Professor Hennessy commented (QQ 1897 and 1898) "This is the way, is it not, the British state develops? ... There is something peculiar, the 'this is England' syndrome. It is all right for other countries with a lesser tradition than ours. They have to write things down but that is their misfortune. We are deeply, deeply engrained as a back-of-the-envelope nation, certainly in the organisation of the central state".

  160.    Mr Charles Cochrane of the CCSU said (Q 1793), "It is always fascinating when one has overseas visitors and tries to explain why the Immigration Service is not an agency, the Prison Service is an agency and the Environment Agency is not an agency at all, in fact it is a non-departmental public body". Dr Smith of Sheffield University (Special Report, p 96) wrote: "Departments have created agencies or privatised very differently. One of the problems is that there is no standard, explicit definition of what services should be in an agency, what should be privatised and what should remain part of central Government."

  161.    Although there is not much clarity about which type of body is most appropriate for a given function, there are some distinguishing features between the different types of body. Mr Michael Bichard, Permanent Secretary of the Department for Education and Employment, was asked (QQ 1067 and 1068) about the difference between an executive agency, such as the Employment Service, and a non-departmental public body (NDPB), such as the Teachers Training Agency. His evidence is quoted at some length because it well illustrates some of the problems of classification. "Non-departmental bodies are normally established by statute. They normally exercise powers that are vested in them by statute. They are headed by boards appointed by Ministers and they will be staffed by non-Civil Servants and with their sponsor department under the Treasury agreement they can normally set their own pay and conditions. ... an agency would be established entirely administratively. It would have powers delegated to it administratively and not by statute. It would be headed by a chief executive who would be recruited now by open competition but who would be a civil servant and who would be responsible, in the case of the Employment Service, to the Secretary of State. It would be staffed by Civil Servants who would be subject to Civil Service pay and conditions so there are some clear distinctions there. There are also some similarities. They both perform executive functions. They both operate to some extent at arm's length although one should not exaggerate that in terms of an agency. They both operate on a day-to-day basis normally without significant Ministerial involvement. ... An NDPB is established by statute which fixes its role. It would normally have a financial memorandum which would fix the terms of its grants and its responsibilities and the responsibilities of the chief executive of the NDPB, compared with me and the Secretary of State, for example. It would have a corporate plan which would be agreed with the department and which would on an annual basis set out its priorities and it would have published accounts. The chief executive would be an accounting officer. He would be appointed by me and he would be provided with the normal guidance and training."

  162.    Mr Bichard went on: "Now you could relate that [NDPB] framework to an agency and say that there are quite a few similarities because an agency of course would have a framework document which would clearly set out the relationship between its chief executive and the Secretary of State; who was responsible for policy advice and who was responsible for operational advice. An agency would have a business plan or in the Employment Service's case an annual performance plan with targets and objectives. They would publish accounts in an annual report and their chief executive would be an accounting officer too. There are some similarities. I think the difference really is that an NDPB is just that touch more independent than an agency."

  163.    Mr Turnbull gave the Committee examples of cases where that extra independence was helpful (Q 2173). He suggested that the public had confidence in investigations carried out by the Health and Safety Executive because the Executive was perceived as independent. Similarly, a new quango, the Food Standards Agency, was about to be established because the public did not believe that advice from the Government's scientific advisers was independent.

  164.    The Committee heard evidence from the Treasury Solicitor, Mr Anthony Hammond, that his Department, which became an executive agency on 1 April 1996, was unusual amongst agencies in that it had no parent department: the Treasury Solicitor's Department is itself an agency (QQ 1140, 1142, 1147, 1148, 1218, 1219 and 1221). The Agency and the Department are co-terminous, whereas in most cases distinct agencies have been created from within departments, with the department remaining as a core department. In relation to the Treasury Solicitor's Department, the Treasury Solicitor is both the Permanent Secretary and the Chief Executive, accountable to the Law Officers and operating within a framework document agreed between him, the Attorney General, the Treasury and the Office for Public Service. The Agency has a Ministerial Advisory Board consisting of the Treasury Solicitor himself, an independent member and the Permanent Secretary to the Lord Chancellor. The Board monitors the performance of the Agency and advises the Attorney General on it. Moreover, there is an agency within this "agency-which-is-also-a-department", namely the Government Property Lawyers. The chief executive of the Government Property Lawyers accounts to the Attorney General through the Treasury Solicitor.

  165.    Another example of the complexities surrounding executive agencies is found in the Department of Trade and Industry. The DTI has six executive agencies which fall into three different categories. The Permanent Secretary, Mr Michael Scholar, described (Q 1561) the differences between them. "There is principally a difference in the way in which financial control is exerted over the agency. The Insolvency Service and Employment Tribunal Service are controlled on a gross running cost basis ... they are on our Vote and their costs are treated as though they were the costs of somebody in the headquarters department. The Radiocommunications Agency and the National Weights and Measures Laboratory are controlled as net running cost agencies, that is to say, the receipts that they earn are netted off against their gross costs. They appear on the Department's Vote, but we control the difference between their costs and their receipts. They are controlled on a net basis. The Companies House and Patent Office are both trading funds and are similarly controlled on a net basis, but they are not on our Vote. They are off the Vote and their accounting officer is appointed by the Treasury. They are one remove further from the Department than the net agencies. Having said that ... I should make it perfectly clear that I am the accounting officer for all six of the agencies. I carry a responsibility for the financial integrity of the agencies, for the way in which they do their business. They are part of the Department. They are DTI Civil Servants, all of them, so I carry responsibility as the Permanent Secretary for all of them".

  166.    In addition to the six executive agencies, the DTI has a number of other different kinds of body. Mr Scholar said (Q 1581), "We have non-departmental public bodies which are sub-divided into two kinds: the executive kind and the advisory kind. An example of the executive kind is ACAS or the seven research councils which we fund. Then there are twenty or so advisory non-departmental public bodies like the British Overseas Trade Board, the Overseas Projects Board. Then we have five departments: the Export Credit Guarantee Department, the Office of Fair Trading and the regulatory departments [Ofgas, Offer, Oftel]. Each of these has a different relationship to the President of the Board of Trade, to our Ministers, the core Department. Each of them is controlled in different ways". The principle underlying these gradations was (Q 1587), "how far they are away from Ministerial control. The agencies are very close to Ministerial control. The people who work in the agencies are Civil Servants. They are part of the Department. ... In many of the non-departmental public bodies, they are not Civil Servants. They do not work directly for Ministers." The Office of Fair Trading is a separate Department of State (Q 1588), operating under statute and advising the President of the Board of Trade. The staff are Civil Servants. The staff of the Monopolies and Mergers Commission, however, and of the Research Councils are not (unless on secondment) Civil Servants.

  167.    Sir Christopher Foster said (Q 98) that the types of quango and non-departmental public bodies that exist "are so multi-faceted and various that you cannot find, not even I think in Sir Leo Pliatzky's work, a real attempt to try and adduce principles of classification. It has defeated even a lawyer's ability to produce a satisfactory classification. ... What has happened as these things have grown like Topsy is that there have been times when one model, like the commission, the public trust, the nationalised industry or the NDPB, was the top example that parliamentary draftsmen or the Civil Servants advising them lifted off the shelf. Then the model changed."

The Committee's Conclusions

  168.    This evidence reinforces our earlier conclusion that there has been little or no coherent rationale underlying the changes made in the Civil Service in recent years. The Committee acknowledges that different functions will always need to be carried out in different ways, with different degrees of Ministerial or other control. Nevertheless, in the absence of a codified constitution, it is particularly important that the public should understand how the public service works and what are the underlying strategy and guiding principles. As it is, the evidence is that it baffles even some experts.

  169.    The Committee entirely accepts that few aspects of public life in the United Kingdom are easily susceptible to tidying up, but many of the bodies we looked at are of fairly recent origin. It is not clear which of the many types of body which now exist should be regarded as an integral part of the Civil Service, bound by the Civil Service ethos, apart from executive agencies, where those employed are Civil Servants. Even in respect of executive agencies it is important that their relationship to the core departments should be clearly understood. Particular bodies should be constituted in particular ways for particular, well-understood reasons. Above all, it should be made explicitly clear in the case of each body which discharges a public function how accountability to Parliament and to the public is secured.

  170.    We conclude on the evidence we have heard that the outcome of the changes made over the last three decades has caused confusion. Given the very large number and variety of public bodies which have come into existence, we recommend that there should be a review to establish some clear, easily understood common principles to guide future developments of this kind.

The Effect of the Agencies on the Structure of the Civil Service

  171.    The Committee considered in some detail the effect which the introduction of executive agencies had on the Civil Service. Witnesses were divided as to whether it had broken up the unity of the Civil Service. Sir Richard Wilson, then Permanent Secretary at the Home Office, thought that it had not (QQ 933 and 934). He said, "I have seen various things written occasionally which imply that in some way agencies are some form of constitutional innovation. I do not see them in that light. I see them as a management device within a Department for giving managers of a discrete business the responsibility for delivering particular outputs in return for a given sum of resources. ... The staff of the agency are still Civil Servants responsible to the Secretary of State of the day. ... I do not see them as a fragmentation [of the Home Office] at all." The Director General of the Prison Service Agency, Mr Richard Tilt, described his executive agency (Q 1447) as "a helpful management arrangement", adding (Q 1463) "I think it is a way of running a public service, and it is quite an effective way of running a public service".

  172.    Sir Robin Butler echoed this, referring to the introduction of executive agencies as a "management technique" (Q 2088). He said "I see the agencies as being part of the core Civil Service".

  173.    Sir Peter Kemp drew attention to the nature of the Civil Service before agencies were introduced (Q 1284). He accepted that agencies had fragmented the Civil Service, but argued that this was not substantially different from what was going on before. The introduction of agencies was a recognition of what was already the reality: "that there were 100 or more activities going on within the machine and all had to be handled separately".

  174.    Mr David Faulkner wrote (Evidence volume, p 220), "The formation of executive agencies is sometimes quoted as an example of the fragmentation of the Civil Service. But unity was never much of a reality except for the old administrative class, and fragmentation, to the extent that it exists, or has increased, may be as much a product of management practices which are applied more generally, and not a consequence of agency status as such. Agencies vary widely in their functions, their nature, the success they have achieved, and the extent to which their successes and disappointments can be attributed to agency status as distinct from other aspects of their political and operating environment. It is difficult to make generalised judgements about them and their special significance as a management reform should not be over-estimated".

  175.    Lord Nolan took a different view, suggesting that the introduction of executive agencies (Q 1799) "was quite definitely a constitutional innovation". He referred to (Q 1800) "the problems that have arisen in the agencies' case in deciding who really is accountable ... for what has been going on in the prisons or the welfare service or whatever it might be. I think that is of real constitutional importance".

  176.    Dr Barry J O'Toole of Glasgow University (Special Report, p 264) wrote that the Next Steps and associated programmes such as the Citizen's Charter and market testing had set in train a process which has led to the fragmentation of the public service and the privatisation of whole swathes of previously public business. In a unified Civil Service a process of socialisation reinforced the idea of public service, but now "Each service provided by or on behalf of Government is a separate service. Loyalty is no longer to the Crown but to the customer. Public service is not a collegial activity; it is governed by personal incentives based on performance measurement. In short, the prevailing ethos within the Civil Service has moved away from public service towards one of private gain."

  177.    By contrast, the Director General of the Prison Service Agency said (QQ 1456 and 1457) that the Prison Service, with its 40,000 staff working in 135 geographical locations, had always been something of a separate service: "I think it is quite distinct from the Home Office, although it remains part of the Home Office. I would not myself place too much weight on the importance of agency status in that. I think the Prison Service has always been quite separate from the Home Office, mainly because the vast majority of staff work away from London, work away from the Home Office, and have little or nothing to do with the Home Office." Similarly Mr Michael Scholar said (Q 1562), "The Patent Office had existed for many, many years and people who worked for the Patent Office saw themselves as working for the Patent Office rather than for the Board of Trade or the DTI ... but the agency concept has usefully concentrated that notion".

  178.    That agency staff still identify with the parent department was clear from Mr Turnbull's evidence (Q 2176). "The people in the agencies got very cross when we started talking about DETR [the Department of the Environment, Transport and the Regions] when we were only referring to the central group, and they said 'We are as much a part of this Department as you are', so now we have set up an agreement that if you use the term 'DETR' you are referring to everyone, that is centre and agencies and regional offices together, and if you only mean the centre, the people that work in the policy division in Whitehall, you call it 'DETR Centre'".

  179.    Some witnesses perceived that the changing shape of the Civil Service resulted from the cumulative effect of transferring functions without an underlying scheme or rationale. The devolution of functions to new bodies was followed by devolution to them of responsibility for personnel matters, including pay and recruitment. The resulting differences in pay and conditions of work between different bodies in the public service introduced a further element of differentiation. Mr Christopher Clifford of Nuffield College, Oxford referred also (Q 346) to the increasing "spatial decentralisation" of London-based central Government functions, giving as examples the transfer in the 1980s of some of the work of the Department of Health and Social Security to Leeds and some of that of the Department of Employment to Sheffield.

  180.    Dr Clark echoed these concerns about the emergence of differences of pay and conditions between agencies and departments. "As we have delegated authority and budgets to these Agencies ... [we] have created ... large baronies. ... We have already got the Senior Civil Service, but we need to find a more institutional way of ... getting ... some comprehension and homogeneity across the top", he suggested (Q 1851).

  181.    Ms Jenny Thurston of the CCSU said (Q 1758) that in terms of personnel management the most significant change in recent times had been the Civil Service (Management Functions) Act 1992. The delegated authorities which it had given to agencies, in which 77 per cent of Civil Servants were now employed, had led to a fragmentation of the very cohesive, co-ordinated Civil Service which had existed thirty years ago when everybody was recruited through the Civil Service Commissioners. Mr Cochrane said (Q 1762) that delegation had increased the complexity of the Civil Service: "It has removed a lot of the glue, if one can put it that way, that binds the Civil Service together as a whole".

  182.    Dr O'Toole (Special Report, p 265) also drew attention to the Civil Service (Management Functions) Act 1992. He explained that the effect of the Act was to make most agencies semi-autonomous, and that to all intents and purposes most Civil Servants were now employed by them and not by a unified Civil Service. One effect of this was to create a barrier to flexible movement within the Civil Service. Another was that private gain could be promoted at the expense of public service where senior and middle managers were employed on individual contracts which incorporated performance related pay. Even relatively low grades also had elements of their pay based on merit and performance.

  183.    The Committee received evidence that performance related pay was inappropriate in the Civil Service for other reasons. Professor Hennessy (Q 1911) thought that performance related pay, which had been introduced in 1988, was "ludicrous. ...It was a profound misunderstanding to think business practices could be imported wholesale". He spoke (Q 1937) of the Civil Service as a republic of intellect where people at all levels had a duty to speak truth unto power and said, "If I thought that Deputy Secretary X was going to work that much more effectively and zealously because of a merit payment of £1,000 at the end of the year, I would be deeply worried about Deputy Secretary X because that is not what should get them out of bed in the morning to do a good job for the state".

  184.    On a more positive note, Professor Hennessy spoke (Q 1894) of the advantages of being able to fit "the right person to the job regardless of their place in the hierarchy. The hierarchy became less of a barrier as time went on. It was not just that Sir Derek Rayner's suggestion of cutting out or grade-skipping for the gifted or potentially high-flying was accepted, it was the degree to which agencies could redesign the Civil Service hierarchy or even remove it in some cases for their own purposes. It meant that the reforms which began post-Fulton, with reducing the number of classes-the famous 1,400 classes which existed before Fulton-was carried through to considerable effect in the 1980s on the back of these other changes and I think that was a considerable advantage".

  185.    In written evidence (Special Report, p 18) Sir Christopher Foster and Mr Francis Plowden said, "Whatever may be said about retaining a unified Civil Service, the creation of executive agencies and the devolution of much [personnel] administration to them and to departments has resulted practically in a more fragmented Civil Service, which will be reinforced by the recent privatisation of recruitment. Given the size of the Civil Service and its increasing fragmentation between departments and other units with separate identities, the adverse consequences can be easily underrated."

  186.    Mr Michael Scholar was asked (Q 1565) about the possible disadvantages of agencies, and while emphasising that no such thing had happened in his Department, he said that if things went wrong "you could get a distancing from the core department. You could get a failure of communication, a break-down in communication between the core department and the agencies. You could get some change in the way in which people in the agencies saw themselves".

  187.    Sir William Reid said (Special Report, p 155) that however laudable, even desirable, it may have been to delegate responsibility from the centre of Government to departments and to the many different kinds of body which now existed, each body now had to work out and operate its own accommodation, staffing, pay, monitoring of equal opportunities and health and safety obligations. "Management and accountability have taken a lot of time away from the consideration, evaluation and implementation of policy. It is incontrovertible that more attention needs to be given to management and accountability but the pendulum has swung too far. The result is that we have lost the economies of scale and of administrative time which were available when there were self-contained departments and national negotiations on the core aspects of pay and conditions of service. I am not persuaded that the advantages of the new agencies outweigh the disadvantages."

  188.    Mr Alan Churchyard of the Civil and Public Services Association (CPSA) (Q 797) said that as a result of the delegation of responsibility for pay "instead of the one series of pay negotiations which was the historic original pattern we now have at the last count 120 different bargaining groups within the Civil Service". He said (QQ 808 to 810) that in many cases agencies had had to put substantial resources into setting up units to carry out functions they previously did not carry out, such as bargaining with unions on pay and other conditions, and that this must be substantially more expensive than the previous arrangements. The Prison Officers' Association said (QQ 1653 and 1660) that while prison officers' pay was dealt with centrally, the devolution of budgets to individual prisons meant that matters affecting working conditions, staffing levels and promotion were dealt with locally, which meant that instead of resolving one dispute at the national level "you have 140 different disputes in different rooms taking place throughout England and throughout Wales". They added (Q 1673) that this led to an inconsistency in standards between establishments, which in turn affected morale. Ms Jenny Thurston pointed out (Q 1759) that while centralised negotiations used to be carried out by some 40 people in the Treasury, over 2,000 Civil Servants had now been trained by the Civil Service College in how to do pay negotiations and that delegated negotiations led to significant increased costs.

  189.    On a more positive note, Sir Richard Wilson drew attention (Q 967) to one effect of the delegation of recruitment. "In the case of the Passport Agency it is very interesting that because of the seasonal nature of their work they are now inventing much more ingenious techniques for their staffing needs. They maintain a core staff who are permanently employed, but above that they have a number of people on fixed-term contracts and they have another layer of people who are basically casual employees on a seasonal basis. That way they are able to cut their costs and they have achieved considerable results in cutting their unit costs while maintaining a core of staff who are loyal."

  190.    Mr Turnbull took the view that delegation of recruitment to departments and agencies was "actually a better way of running these services" (Q 2220). He considered that there was no reason why the pay and grading structure of the Coastguard Agency should be the same as that of the Highways Agency, and explained that staff separated by disparate pay and conditions could all belong to a single Civil Service "in the same way that you can belong to the nation and you live in different places and have different local allegiances. The ethos as defined in the Civil Service Code is shared throughout these bodies".

The Committee's Conclusions

  191.    Agencies were introduced against a background of privatisation, contracting out, the creation of internal markets within Government departments and the proliferation of non-departmental public bodies. If, despite initial doubts as to their precise status, we accept that executive agencies remain and should remain in all important respects an integral part of the Civil Service as a whole, the distinction between them on the one hand and privatised and non-departmental public bodies should have been made much clearer at the time, and it should be affirmed now.

  192.    On balance the Committee accepts that the creation of executive agencies has not, in a constitutional sense, recast the architecture of the state-so long but only so long as accountability of Ministers to Parliament for the work of executive agencies remains the same as their accountability for any other aspect of their departments' work (see paragraphs 299ff below).

  193.    Nevertheless, the creation of the agencies has, in the Committee's view, contributed to some structural division of the Civil Service. There is firm evidence that the devolution to executive agencies of responsibility for pay and conditions of work is contributing to a sense of disunity in the Civil Service, and whatever the overall cost, the personnel management cost is bound to be higher. The fact that the agencies' budgets are subject to overall Treasury control means that in practice it is unlikely that very significant differences can develop between agencies, but the differences which already do exist contribute to a sense of cultural fragmentation, and we believe that such differences will continue to constitute a threat to the unity of the Civil Service. Devolved responsibility for pay and conditions has not fragmented the Civil Service yet: but there is a need to take care to ensure that the new arrangements do not fragment the service in the future.

  194.    We do not believe the risks and implications of this division were properly acknowledged or addressed as one structural change after another was introduced. The changes of organisation could have led to the fragmentation of the Civil Service. Indeed, some of our witnesses consider that the Civil Service was fragmented by the changes. We are not satisfied that, although divisions have taken place, there has been what can really be called a fragmentation of the Civil Service. Nevertheless, the real danger that such fragmentation could happen should be considered before any further structural changes are made. It is not safe to assume that a single strong ethos and a sense of shared loyalty to a unified service can without conscious effort be maintained across a wide range of differently constituted and geographically dispersed bodies. Most private sector organisations are well aware of this and devote considerable effort and resources to maintaining their corporate identity and fostering pride in it amongst their employees. Ministers and senior officials need to do the same-as was accepted by our witnesses.

  195.    The Committee recommends that the Minister in charge of the Office of Public Service should be given explicit responsibility for maintaining the unity and standards of the Civil Service and for monitoring the effect on them of any structural change.

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